New South Wales Supreme Court CITATION : Exterior Home Improvements v Stanger [1999] NSWSC 222 CURRENT JURISDICTION : Common Law FILE NUMBER(S) : 12322/98 HEARING DATE(S) : 18 March 1999 JUDGMENT DATE : 23 March 1999 PARTIES : Exterior Home Improvements Pty Limited (Appellant) Bruce Stanger (Respondent) JUDGMENT OF : Studdert J LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 1302 of 1997 LOWER COURT JUDICIAL OFFICER : Mr S. Jackson COUNSEL : S. Winters (Appellant) R. Montgomery (Respondent) SOLICITORS : Rutter Morgan & Co. (Appellant) Stanger & Clarke (Respondent) CATCHWORDS : Stated case; appeal from Local Court; whether findings supported offence under s 52 of the Trade Practices Act; magistrate drew on independent personal knowledge; damages assessed by reference to cost of total replacement; whether any error of law in findings and decision of magistrate Fair Trading Act ACTS CITED : Justices Act Local Courts (Civil Claims) Act Trade Practices Act Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Bellgrove v Eldridge (1953-54) 90 CLR 613 Burns v Lipman (1974-75) 132 CLR 157 CASES CITED : McWilliam's Wines Pty Ltd v McDonald's System of Australia Pty Ltd (1980) 49 FLR 455 Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited (1981-82) 149 CLR 191 Taco Co. v Taco Bell Pty Limited (1982) ATPR 40-303 Waltons Stores (Interstate) Limited v Maher (1987-88) 164 CLR 387 Wetherall v Harrison [1976] 1 QB 773 DECISION : See para 43 IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION STUDDERT J Tuesday 23 March 1999 12322/98 EXTERIOR HOME IMPROVEMENTS PTY LIMITED v BRUCE STANGER JUDGMENT 1 HIS HONOUR : This is an appeal by way of stated case from a decision of the Local Court at Newcastle. The respondent, Bruce Stanger, took proceedings in that court against the appellant, Exterior Home Improvements Pty Limited, after the appellant had carried out certain building work for him. It appears from the facts found by the learned magistrate as recorded in the stated case that this work involved the fixing of cladding to a residence at Merewether. Hot dipped galvanised nails were used by the appellant to secure the cladding in position, but in due course these nails rusted causing discolouration of the cladding. The respondent sued the appellant seeking damages for breach of contract, and in the alternative, he relied upon ss 52 and 53 of the Trade Practices Act and ss 42 and 44 of the Fair Trading Act. The respondent was successful in the claim brought pursuant to s 52 of the Trade Practices Act and the learned magistrate assessed damages in the sum of $20,410. He also awarded costs in favour of the respondent. 2 By reason of the operation of s 69 of the Local Courts (Civil Claims) Act, 1970 and s 101 of the Justices Act appeal lies to this court in these proceedings to correct error of law. 3 I have drawn upon the stated case already merely to outline the nature of the claim that was before the Local Court, but I now record in their entirety the facts found by the learned magistrate as set out in that stated case: "(i) On 13 February 1991, the parties entered into a written contract. (ii) The relevant site of the contract is Merewether New South Wales, adjacent to the Pacific Ocean. (iii) On 1 April 1991, the parties entered into a further contract for additional work. (iv) On 17 April 1991, the Appellants wrote to the Respondent claiming a cost for those Variations. (v) The Respondent abandoned the use of silicon bronze or Monell stainless steel nails as they were too soft for the intended purpose. (vi) The parties agreed to use hot dipped galvanised nails. (vii) The parties discussed the use of hot dipped galvanised nails. (viii) The evidence of the Respondent and of the Appellant's Agent was at variance as to what was intended between the parties. I found as a fact that the Respondent relied on the representation of the Appellant's servant or agent that the hot dipped galvanised nails were suitable for the purpose, in that they would be long lasting and unaffected by rusting. (ix) A substantial number of those nails have rusted about the heads. (x) The decomposition of the nails is causing discolouration of the cladding. (xi) The decomposition of the nails is in part attributable to the proximity of the Contract site to the Pacific Ocean." 4 The magistrate stated the grounds of his decision as follows: "(i) The Respondent asserted that he had a conversation with the Appellant's agent concerning the hot dipped galvanised nails in which the Appellant's agent said, 'They [the Company] had never had a hassle with the hot galvanised nails, they used them on their Nuline range and fitted them all around the water, they were made for softwood and were the best you can get'. The Appellant's agent essentially agreed with this conversation, but explained that, 'The best you can get' meant that they were 'the highest quality Australian made nails available', owing to the amount of 'gal used in the manufacture process'. (ii) I found as a fact that the Respondent wanted to use the best quality fixing medium available. I found as a fact that the Respondent was assured by the Appellant's agent that the hot dipped galvanised nails were quite satisfactory for the job and that owing to this representation by the Appellant's agent to the Respondent, the Respondent abandoned any further search or enquiry for an alternate fixing medium. (iii) I found as a fact that the Respondent relied upon the representation of the Appellant's agent in that they would be:- (a) Suitable for the purpose; (b) Long lasting; (c) Unaffected by rusting. (iv) I found as a fact, that a substantial number of those nails have rusted about the head and that this has caused a loss to the Respondent. (v) I found as a fact that the representation was reckless or without due care for the likely foreseeable consequences and was therefore a false, misleading and deceptive representation, and that it was conduct that brings the matter within Section 52 of the Trade Practices Act. (vi) The Respondent contended, and I agreed with his contention, that the only reasonable course to adopt would be to remove all exterior cladding and nails and to replace them with new cladding and new nails, such nails to be stainless steel. (vii) The Appellant contends that the Respondent has derived a benefit from the quantum assessment by myself. The Appellant contends that the appropriate quantum is:- (a) The cost of $3,500.00 to remove and replace the galvanised nails or; (b) The sum of $9,247.00 which is the consideration paid by the Respondent to the Appellant for the original contract." 5 The issues posed for the determination of this Court were expressed in para 5 of the stated case as being four in number, namely whether: "(a) In taking into account on a limited basis, matters not given in evidence but to which I applied my knowledge as a citizen, homeowner, part-time renovator and maintenance person, this evidences a denial of natural justice to the Appellant; (b) It was open to me on the evidence to find as a fact that the Appellant's conduct fell within Section 52 of the Trade Practices Act (Clth); (c) I have given judgement in the matter according to law; (d) I have determined any quantum according to Authorities." 6 Ms Winters, who appeared for the appellant before this Court, presented very thoughtful written submissions and addressed the Court on those submissions. 7 Ms Winters asked the Court to refer to the judgment of the magistrate for the purposes of the appeal and Mr Montgomery expressed no opposition to that course. Indeed, he referred to that judgment also. 8 Ms Winters succinctly argued three grounds on the appeal and I propose to identify and to address those grounds in the order in which they were raised by counsel: (i) that the magistrate erred in law in the conclusion reached under the Trade Practices Act (this is essentially the issue raised in para 5(b) of the stated case); (ii) that the magistrate denied natural justice to the appellant by taking into account his personal knowledge acquired otherwise than from evidence introduced at the hearing (this is essentially the issue raised in para 5(a) of the stated case); (iii) that the magistrate erred in law in the assessment of damages (the issue addressed in para 5(d). Ground 1 9 In arguing this ground Ms Winters took me to the text of the magistrate's judgment at pp 4-5: "The plaintiff says he had a conversation with Laughton, and Laughton agrees, about using hot dipped galvanised nails. There is a difference between the conversations each relates - the plaintiff says that Laughton's words to him were that they'd never had a hassle with hot dipped galvanised nails, they used them on their Nuline range and fitted them all around the water, they were made for softwood and were the best you could get. The plaintiff took this as an implication that they were the best you could get for the job at hand. Laughton agrees basically with the conversation, but he says that what he said was that the nails which they used are the best you could get, meaning that they were the highest quality Australian made nails available. There is of course a substantial difference between the two meanings or understandings." 10 Ms Winters submitted that what the magistrate there stated could not be treated as being "misleading or deceptive" or "likely to mislead or deceive" for the purposes of s 52 of the Trade Practices Act. I was referred to the decision of Smithers J in the Federal Court in McWilliam's Wines Pty Ltd v McDonald's System of Australia Pty Ltd (1980) 49 FLR 455. That case concerned an advertisement used by the well known wine producer, which advertisement displayed three two litre wine bottles and a wine author who said "I call it the 'Big Mac'". The fast food retailer claimed that this use of the words "Big Mac" contravened s 52 of the Trade Practices Act. It was held that it did not. In this case Smithers J, with whom the other members of the court agreed, whilst also expressing their own further reasons, said at 465: "But were it not for the notion that there would be something improper in the use of the words by any trader other than McDonald's, or that in whatever context they were used they could only refer to McDonald's hamburger, or for some such notion in the mind of a reader, the advertisement would not convey to anybody the idea that it referred to or had anything to do with the hamburger. Any such initial impression would be destroyed by the context. At most, all that might occur would be surprise that McWilliam's were using the same name for its product as McDonald's was using for its. At the most some people might wonder whether McDonald's and McWilliam's were acting together. But even so they would not be misled. It is a question therefore whether any misapprehension which has arisen is a consequence of McWilliam's conduct or of other factors, namely that the advertisement was read and interpreted by reference to erroneous concepts and assumptions. And the further and critical question is whether conduct otherwise neither misleading nor deceptive acquires deceptive quality because persons under the influence of erroneous ideas draw erroneous inferences concerning it." 11 Ms Winters submitted, drawing on the above dicta, that in this case the magistrate fell into error in not addressing "the further and critical question" identified by Smithers J. 12 Nowhere, Ms Winters submitted, did the magistrate find that Mr Laughton, who it appears was the appellant's works manager, expressly stated that the hot dipped galvanised nails were the best for the job at hand. 13 Ms Winters drew attention to later passages in the judgment which it was submitted showed that the magistrate further misstated the evidence. The following passage appears at pp 7-8: "While the plaintiff abandoned the use of silicon bronze or monell stainless steel nails largely as a result of his own inquiries and experiments, the evidence is that he was assured by Laughton that hot dipped galvanised nails were quite satisfactory for the job and as a result of that representation the plaintiff abandoned any further search or inquiry that he, the plaintiff, might have made for a fixing medium made from any other material." 14 Then later at p 8 the magistrate referred to "best nails for the job" in this passage: "The fact is, as is proved by the evidence, that a substantial number of these so called 'best nails for the job' have rusted about the heads…" 15 Ms Winters submitted that in the above passages the assertion that Mr Laughton had given an assurance that the nails were quite satisfactory for the job was not supported by evidence. The further assertion that the nails were the "best nails for the job" was not an assertion made by Mr Laughton in those words. 16 Finally, on the first ground Ms Winters submitted that in the conclusion expressed at the foot of p 8 the magistrate misdirected himself as to the language of s 52: "I find as fact that the representation upon which the plaintiff ultimately relied was made by the defendant's servant or agent either recklessly or without due care for the likely and foreseeable consequences, and was therefore a false, misleading and deceptive representation, and that as such it was conduct which brings it within s 52 of the Trade Practices Act and the mirror sections of the Fair Trading Act." 17 It was submitted for the appellant that the magistrate, having misconstrued his primary findings of fact, went on to say in the ultimate finding expressed in the above passage "that the representation upon which the plaintiff ultimately relied was made by the defendant's servant or agent", and that this revealed error of law. Reference was made to Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 and in particular to the judgment of Glass JA at 156. 18 I do not consider that the arguments advanced by Ms Winters on Ground 1 are persuasive. In the first place there is the obvious difficulty for the appellant that no appeal lies to this Court on issues of fact and this Court is in essence being asked to review the magistrate's findings of fact. 19 Further, it is plain from the judgment of the magistrate to which I have been taken by both counsel that Mr Laughton's representations were made in the context of a contract involving the use of nails in an environment where the building was exposed to salty air and in which the respondent was known by the appellant to be concerned about the hazard of rust. That concern plainly fixed upon the type of nails to be used and the magistrate found that the appellant, through Mr Laughton, recommended the use of the nails that were used. 20 Whilst the test for s 52 as to whether conduct is misleading or deceptive is an objective test (see Taco Co. v Taco Bell Pty Limited (1982) ATPR 40-303), evidence that the respondent was misled was relevant and admissible, so that it was appropriate, as the magistrate did, to record the respondent's perception of Mr Laughton's representation. However it does not follow that the magistrate did not make an objective assessment of the relevant evidence reflecting that assessment in his express findings. In making his own objective assessment it was relevant for the magistrate to take account of the whole of the conduct of the appellant and a reading of the judgment demonstrates that the magistrate did this. The dicta of Gibbs CJ in Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited (1981-82) 149 CLR 191 at 199 are in point: "The conduct of a defendant must be viewed as a whole. It would be wrong to select some words or act, which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. It is obvious that where the conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words. The same is true of acts." 21 It seems to me that on the findings of fact which the magistrate made he was entitled to conclude as he did that the appellant's conduct offended s 52 of the Trade Practices Act. The findings of fact afforded ample justification for the finding that was ultimately expressed that the appellant's behaviour offended s 52. The expressed finding of a misrepresentation was a finding of a material element in an offence under s 52: see Taco Co (supra) per Deane and Fitzgerald JJ at 43-751. 22 It may be that the findings of the magistrate would also establish a breach of s 53 of the Trade Practices Act, but it does not seem to me having regard to those findings made by the magistrate that the manner in which he expressed his conclusion that the appellant had breached s 52 warrants the remission of the case to the Local Court for reconsideration. Ground 2 23 This ground refers to two passages in the judgment. The first of these appears at pp 6-7: "While there was no evidence of it adduced in this matter, I am aware that builders have methods of ensuring that thin nails do not bend when driven into hard timber which, while it slows down the speed of the job, is not as labour intensive or slow as predrilling." 24 The second passage is at p 9 of the judgment: "One thing that I think it is appropriate to say at this stage is that the defendant tried to mount a defence upon the ground that the plaintiff had failed to properly maintain the house in that he did not regularly wash the walls with water, especially in those areas where the rain did not reach. I know that many home owners do from time to time wash the walls of their houses, particularly in a salty or dusty atmosphere, but this as I understand it is directed more to maintaining the aesthetic beauty of the finish than as a maintenance regime. Apart from the fact that the plaintiff claims to have been unaware of any requirement to so wash the walls, I myself, in all the years I have been a house owner, part time renovator, and maintenance man, have never heard any suggestion that any regular washing regime is necessary for the proper maintenance of any wall built from any material whatsoever. I accept, however, that this perceived need was related more to the maintenance of the nails than the cladding itself. I am aware that I have already imported into this matter information known to me from my experience as a person who has had some involvement in building matters, something which perhaps could be frowned upon as it was not evidence given in the cause, but I cannot leave that knowledge behind and 'act dumb' and ignore reality when I come onto the Bench." 25 Ms Winters very properly acknowledged that the first of the above passages contained matter that did not impinge directly upon the facts relevant to the findings which the magistrate reached. Nevertheless the complaint is made that the appellant was deprived of the opportunity of dealing with a matter that may have affected the magistrate's assessment of the appellant's competence as a builder. 26 The second matter, concerning washing the exterior, does not seem to have had any relevance to the issues even though the magistrate referred to the defendant trying to mount a particular defence. Ms Winters submitted that it may have been relevant to mitigation of damage, but mitigation was not pleaded nor, Mr Montgomery assured this Court, was it an issue in the Local Court. 27 The circumstances in which the magistrate adverted to his own knowledge, derived independently of the evidence in this case, do not appear to have impacted upon the decision ultimately reached. 28 Mr Montgomery referred to a number of decisions concerning the application of personal knowledge by a tribunal. In Wetherall v Harrison [1976] 1 QB 773 the decision at first instance was by a bench of three justices, one of whom was a medical practitioner. That member of the bench expressed his opinion on a medical issue that had arisen at the hearing and in relation to which medical evidence had been given before the court. The opinion by the member of the bench was expressed when the justices were deliberating. It was held by the Court of Appeal that it was not improper for this to have been done. Lord Widgery CJ, with whom the other members of the court agreed, said at 778: "So I start with the proposition that it is not improper for a justice who has special knowledge of the circumstances forming the background to a particular case to draw on that special knowledge in interpretation of the evidence which he has heard. I stress that last sentence, because it would be quite wrong if the justice went on, as it were, to give evidence to himself in contradiction of that which has been heard in court. He is not there to give evidence to himself, still more is he not there to give evidence to other justices; but that he can employ his basic knowledge in considering, weighing up and assessing the evidence given before the court is I think beyond doubt. Furthermore, I do not see why he should not, certainly if requested to by his fellow justices, tell his fellow justices the way in which his specialised knowledge has caused him to look at the evidence." 29 In Burns v Lipman 132 CLR 157 the plaintiff's case involved a motor vehicle accident that had taken place on a Tasmanian road. In dismissing the action the trial judge drew on his knowledge that it was not usual on Tasmanian roads for a warning device to be sounded by an overtaking vehicle (the plaintiff was driving a vehicle with which the defendant's vehicle collided as the latter was overtaking). In reversing the decision of the Full Court of the Supreme Court of Tasmania and in restoring the decision of the trial judge, the High Court held that it was appropriate for the trial judge to use his knowledge in addressing the question of what the plaintiff was entitled to expect of an overtaking motorist in the circumstances (see the joint judgment of Barwick CJ, Stephen, Mason and Jacobs JJ at 161). 30 Mr Montgomery also referred to Waltons Stores (Interstate) Limited v Maher (1987-88) 164 CLR 387 at 435 where Deane J referred to the well settled practice of assuming knowledge in the court of procedures in conveyancing transactions: "It has long been the practice of courts administering equity in New South Wales, as it was in Chancery in England, to assume, in matters relating to dealings with land, the existence of a basic knowledge of the ordinary practice of conveyancers." 31 The above authorities to which Mr Montgomery referred the Court indicate that there is no general rule prohibiting a tribunal from utilising knowledge acquired independently of the evidence in a particular case. In my opinion a tribunal should nevertheless be very careful in its use of knowledge of a specialised nature when it derives that knowledge from a source independent of the evidence introduced in the case it has to determine. If, for instance, such knowledge was used without notice to the parties to reject unchallenged expert evidence for a reason that was not addressed in the evidence, this would be inappropriate because justice requires that a party be given the opportunity to address any such reason, and to endeavour to persuade the tribunal against its application. 32 It is however undesirable that I endeavour to define principles of general application for the purposes of deciding the present case. Since it does not seem to me that the expressions of personal knowledge which the magistrate made bear upon the outcome of the case, I am satisfied that such expressions involved no denial of natural justice. Ground 2 therefore fails. Ground 3 33 The damages assessed by the magistrate were awarded upon the basis that they represented the cost of replacement of the cladding and the nails, using stainless steel nails. 34 The magistrate referred to Bellgrove v Eldridge (1953-54) 90 CLR 613, a case in which it was held that demolition of a building and rebuilding was reasonable and necessary to provide a building that conformed with the contract which had been breached. 35 Ms Winters submitted that the approach taken by the magistrate in this case by reference to Bellgrove was wrong. Firstly it was submitted that whilst in Bellgrove the builder had departed from the specification, in the present case the respondent had the work done in accordance with the contract, because the parties had agreed to hot dipped galvanised nails. Moreover, damages in the present case were to be assessed for breach of s 52 of the Trade Practices Act, not for breach of contract. It was further submitted that the damages awarded did not take account of the fact that the contract work had been done six years previously and that the cladding would have required painting regardless of rust discolouration. 36 Whilst Bellgrove was distinguishable, the decision of the magistrate discloses that he directed himself to determine what was "necessary and reasonable" to address the harm occasioned by the nails used (p 12 of judgment). The magistrate then reviewed the expert evidence in point. The appellant's expert posed two alternatives, the first and more conservative approach being to remove only certain of the nails and the cladding boards to which those nails were affixed. The second approach however was to remove all the cladding and nails and to replace these items, but using stainless steel nails. One of the respondent's experts adopted the more extensive option posed by the appellant's expert. At the same time, the respondent's expert posed an alternative more conservative approach but the judgment indicates that the expert did this with reservations. 37 The magistrate concluded that anything short of total replacement at the time of assessment would "constitute but a doubtful remedy" and that "not only [was] it necessary that total replacement be undertaken to produce conformity with that for which the parties contracted, it [was] also, having regard to the circumstances, the only reasonable course to adopt." 38 It was submitted by Mr Montgomery that in the particular circumstances of this case the approach to the assessment of damages which the magistrate took was correct. Mr Montgomery's argument was as follows: the misrepresentation attracting liability was made at a time when the appellant and the respondent had previously agreed to a contract that contemplated the use of nails that would not rust; the misrepresentation led to the variation of the contract by the introduction of the nails that did rust; to compensate the respondent by placing him in the position he would have been in had s 52 not been breached involved putting the respondent where he was before the misrepresentation, that is to say by restoring him to the advantages of the contract entered into originally. 39 Upon reflection I consider Mr Montgomery's submission is correct. 40 Furthermore, it seems to me that where one of the respondent's experts and the appellant's expert agreed on the approach ultimately adopted by the magistrate as an available method of addressing the rust problem, it was open to the magistrate to conclude that it was reasonable to adopt that approach in order to compensate the plaintiff. 41 It has not been established that the assessment of damages involved relevant error of law. 42 The challenge to the judgment in the Local Court therefore fails. Formal orders 43 The summons seeks determination of the issues raised in paragraph 5 of the stated case. I now answer the questions in the order in which they were raised in that paragraph: 5 (a) No 5 (b) Yes 5 (c) Yes 5 (d) Yes I order the appellant to pay the respondent's costs of the proceedings in this Court. ********** Last Modified: 03/23/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.